One of the crucial aspects of investments is its flexibility to liquidate whenever required. As important as it is to enter the market at the right time for a stock, it is equally crucial to sell it at the right time, that is, liquidate it.
Liquidation can be used for several reasons, such as using the cash for personal benefits, re-allocating your investments, diversifying or booking profits. Since this makes it a crucial aspect of investment on a trading website, let us understand it in depth.
Understanding Liquidity
Liquidity or liquidation is a term used to describe cash earned by selling the stocks or other assets that you hold. In the context of the stock market, it generally happens when you decide to exit your position in the stock. You may choose to sell it to re-distribute your funds across the portfolio, use the profits for personal reasons or rebalance the portfolio to avoid or balance losses.
Thus, liquidity in your investments through your trading website is a deciding factor as it provides you with financial flexibility. Such financial flexibility helps you deal during emergencies or time an investment opportunity.
Factors Affecting Liquidation Times
Timing the right moment to liquidate depends on many factors that directly affect the stock market’s fluctuations. Here are some of the factors that one should consider:
- Economic Data: The economic conditions of the country and the world greatly affect the market fluctuations. For example, changes in a country’s currency valuation or an increase in interest rates for an investment tool can become a huge deciding factor to enter, retain or exit an asset.
- Expert’s Ratings: If an expert analyst expresses their views on a stock and its company’s business model, it affects the stock’s performance and may result in its rise or downfall accordingly.
- Government Policies: The government imposes new policies or updates an existing policy, thereby affecting the overall market conditions. Keeping a tab on such updates can help an investor gain insights into exiting an asset position.
- Foreign Market: The performance of a certain asset, sector or a company stock in a foreign market, such as the U.S. market, creates a direct impact on particular stocks or certain stocks market value and performance in India.
Types of Assets and Their Liquidation Time
- Cash and Cash Equivalents: They are highly liquidable and include treasury bills, commercial paper, money market funds, etc.
How liquid are they: Highly liquid
- Marketable Securities: Some of these are said to be liquid depending on the underlying asset. Examples: stocks, bonds, ETFs, etc.
How liquid are they: Highly liquid
- Fixed Deposits: These have flexible investment tenures, ranging from 12 to 60 months. Once you invest in them, your funds are locked in for the selected tenure.
How liquid are they: Less liquid
- Stocks: These are also highly liquid as they are easy to sell and buy due to the existence of a high number of buyers and sellers.
How liquid are they: Very liquid
- Government Bonds: Since they are issued by the government and are a safe investment option, they are also highly liquid.
How liquid are they: Highly liquid
- Mutual Funds: These are investment tools where funds from investors are pooled together to generate returns.
How liquid are they: Very liquid
How to Liquidate Quickly?
Typically, to liquidate your stock investments, your trading website must provide a guide or an easy-to-follow process. Here is how you can navigate through your trading website and withdraw your funds:
- Go to your trading website.
- Navigate the dashboard/homepage to find icons similar to Money that symbolise withdrawal.
- Once you go to the withdrawal section, scroll through the page to find the Withdraw Funds
- Next, enter the amount or the quantity you wish to withdraw.
- Confirm your details and proceed to initiate the transfer to your bank account.
Conclusion
Liquidation is a crucial part to consider before investing in stocks or any other asset on a trading website platform. It provides flexibility to use the funds for various purposes. The liquidity of your investment asset will vary depending on the factors such as type of assets, demand and supply, prevailing market conditions, etc. Therefore, analyse your financial goals and understand the assets and liquidity before investing.
